The market direction outlook I discussed on Wenesday is continuing to unfold. On Wednesday the market timing technical indicators were calling for a bounce back which was primarily technical in nature due to the oversold condition and the market direction moving lower and hitting the 50 period exponential moving average (EMA). But the market direction technical indicators also indicated that any rally would fail and the market would then move lower.
So on Thursday we saw the bounce. It was a very nice rebound, much bigger than expected but a lot of it driven by the rumor that the Fed will be indicating a slow, gradual scaling back of Quantitative Easing and very slow rising interest rates. This caused the market direction to rebound higher than it should have as investors enthusiastically jumped back into stocks.
Market Direction and Inflation
But today’s inflation numbers grabbed the attention of investors and they are back worrying that interest rates will rise quicker than expected and Quantitative Easing will be scaled back earlier and faster than anticipated. Due to this renewed worried about the Fed, investors are back selling today.
Market Direction and Consumer Confidence
Today’s consumer confidence numbers show a decline but yesterday’s retail sales showed growth. Both of these results should be obvious to investors. The confidence numbers didn’t surprise me at all. The media is droning on about the end of Quantitative Easing like it means the end of any economic recovery. That has to impact consumers. Meanwhile with retails sales stronger, stores are increasing their prices which you can see in today’s inflation numbers. I always enjoy the consumer confidence numbers and I always remember how the consumer confidence numbers were great just before the markets fell apart in 2008. So you know what I think of consumer confidence numbers as a way to judge the direction of stocks.
Market Direction Worry
When you invest in stocks you have to realize that market direction can change like the wind. My Market Direction Technical Analysis is geared for short-term outlooks only as truly no one can judge more than a few days at best. Investors have always worried. They worry about everything and I do mean everything. Back in the early 1970’s when I started investing I would buy some stocks and then within days I would be whipsawed back and forth, up and down as investors worried about President Nixon, the Oil Embargo, Middle East, Russia, you name it, they worried about it.
Flip forward to today and investors are absolutely the same. This is why I changed to options as the primary investment method and specifically developed Put Selling and Covered Call strategies to build my portfolios without having the same worries and fears as the average investor.
For example, let look at the past few months to see what is really going on in the market direction.
Market Direction 3 Month Daily Chart Intraday June 14 2013
When you look at the 3 month chart you begin to calm down immediately. You can see what has happened. The market direction made a high back in April of around 1600 and then pulled back. After a bounce off the 50 day moving average the market direction pushed higher and broke through 1645. Since then the market direction has been in turmoil, thanks in part to Bernanke’s recent comments about scaling back Quantitative Easing and thanks to the past quarter where revenue growth was poor for the majority of S&P 500 stocks. Earnings were decent in the past quarter but in the end it is revenue growth that will ultimate drive earnings higher and right now the market direction is choppy as investors worry about the upcoming quarterly earnings growth. We will find that out soon enough.
You can see that the recent decline is trying to stay above the April highs of 1600. It cannot however break through 1645 on the upside. But this is not a worry yet. As long the market direction continues to hold the 1600 level there is not a lot of worry with the present situation. If 1600 breaks, then we will test the 100 day support in a very short time of probably one or two days at most.
Intraday Market Direction Outlook Summary
So right now, I am not worried. All I do in a choppy environment like we are in at present is pull back a bit on the capital I have at risk. Here and there I trade my Spy Put Options and the Trading For Pennies Strategy on IWM, both of which provide very good returns in this kind of market. For Put Selling I stay with the large cap stocks and rarely dabble in spec stocks. I keep to the stocks that will bounce back immediately when the mood of investors changes. Meanwhile though I can earn good income thanks to the heightened volatility.
I guess just like Alfred E Newman of Mad Comic Fame, my motto is “What? Me Worry?” This remains a serious bull market. I am not even thinking about a bear market at this point. If there is a more serious correction I know my Spy Put Options will earn big returns and I might even consider the Ultra Short ETFs like DXD or SDS but this is not 2008 and I see nothing on the radar that tells me the market direction is preparing for a collapse despite all the media pundits to the contrary. Instead I am staying the course and continuing to earn very good returns while the market keeps whipsawing back and forth, helping to keep option premiums elevated which is exactly what I want to see happen.
So remember, turn down the noise of the market and media and look at the S&P 500 daily chart as above. 1600 is presently the level to watch and if it breaks it will be time to consider buying Ultra Short ETFs and Spy Put Options for a move to the 100 day moving average. If you ask me if I think that will happen, all I can say is, at this point I don’t have a clue but I’m not worried because I know if it does break I will make a very nice profit on the way down to the 100 day moving average.
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